Rising costs, in particular electricity and transport costs, are exerting pressure on the gas industry, forcing companies to rethink their supply chain strategies, says industrial and speciality gas manufacturing and supply company Air Products South Africa supply chain GM Seelan Gounden.
“Environmental pressures such as tariff increases have forced us, from time to time, to change our logistics operations. An efficient supply chain may have to make way for business effectiveness.
“When product has to be pooled from production sources that are geographically widely spread throughout the supply chain, transport costs increase,” he states.
Gounden explains that it is a matter of understanding that supply chain efficiencies may need to be prioritised on occasion to realise the greater goal – that of business effectiveness. This is the approach Air Products South Africa has had to take in the winter months for the business to cope with increased winter power tariffs.
“As a result, product availability will be prioritised to maintain our security of supply promise to customers. Electrical energy is by far the biggest portion of our production costs, so hikes in State-owned power utility Eskom’s tariffs have a significant impact on our bottom line, necessitating a change of approach to one of flexibility in response to these pressures.
“As a network, this body needs to be flexible enough to respond creatively to the environment, which includes changes in power and fuel costs,” says Air Products South Africa packaged gases GM Sizwe Nkonde.
According to Gounden, Air Products South Africa has increasingly been looking for creative solutions within its production and supply chain to meet the challenge of Eskom’s proposed hikes in power tariffs. Such solutions include switching off equipment such as compressors, when possible, to minimise plant use.
“It necessitates a reconfiguration of plant use, as well as auxiliary equipment, such as cooling fans in the winter months,” states Gounden.
He stresses that managing power use is also closely aligned with managing demand in a fluctuating market.
“Managing the dynamic inter- change between supply and demand necessitates not only better management and flexibility on our part, but also better forecasting skills in terms of market knowledge, both locally and globally,” adds Nkonde.
Another challenge facing the gas industry is the rise in fuel costs and Air Products South Africa is dependent on road transport for its bulk and packaged gas distribution.
“There are a number of ways in which Air Products South Africa meets this challenge, such as analysing and improving a customer’s on-site inven- tory storage. Improved inventory and cost management result in increased reliability and security of supply,” comments Gounden.
In addition, the company has made inroads into reducing its fuel consumption through driver training and the monitoring of driving behaviour through drive-cams, as well as the use of route optimisation programmes.
“The fleet should ideally be both robust and fuel efficient – there should be a balance,” he maintains. “Further, an increase in labour costs has to be taken into account in any business context but must be mitigated within the supply chain through the alignment of all stakeholders towards a common goal of cost effi- ciency,” he concludes.